A company’s intellectual property (IP) is one of its most valuable assets. It’s important to thoroughly assess an acquisition’s patent portfolio to better gauge its potential investment value. The larger purpose of acquisition due diligence, of course, is to prove any assumptions, confirm information received (or perceived), and to gather the right information that enables informed decisions to be made concerning company acquisition.
Outside of the immediate business acquisition process are the major issues of competitiveness and place in the associated industry’s IP landscape. Properly-conducted patent analysis can reveal a company’s ability to exclude competition from its business activities and market its products free from any interference by third parties. It can also help the acquiring party assess the risks of investing in a company with products that can be blocked by third-party patent rights, weakening its market position and limiting its freedom to operate.
Assessing patent status and freedom-to-operate
Comprehensive acquisition due diligence has two major components: an audit of the target company’s patent portfolio and a freedom-to-operate evaluation to determine and address any concerns regarding the target company’s actual ability to practice the technology in question. The patent audit looks at the target company’s granted and pending patent assets to determine their scope, validity, enforceability, ownership and transferability. This should include a complete owned and licensed patent inventory, an ownership and status review, as well as a complete analysis of each patent’s scope of protection and value within the portfolio.
Assessing patent ownership is a key component of the business acquisition process because it can reveal patent enforceability concerns which, not surprisingly, have a direct bearing on the value of the patent. These concerns can include such things as:
- Correct identification of inventors
- Validity of assignments
- Territorial restrictions
- Non-compete clauses
- Assignment or transfer restrictions
- Indemnification clauses
- Ownership by government entities
If the patent assets are licensed, a different set of potential criteria come into play to determine:
- If the licensor has rights to the invention
- If there is sole or joint ownership of the asset(s)
- If there are transferability rights
- If there is license exclusivity
- If there are royalties
- The duration of the license
- Whether the license properly covers the company’s related activities
Freedom-to-operate evaluations are crucial for helping establish a patent’s context in the IP landscape, discovering any limits on the target company’s ability to make strategic business moves and determining whether it has the right to exclude other companies from practicing the claimed invention.
Freedom-to-operate (FTO) analysis can also identify competitive blocking IP – patents that may cover aspects of the technology (including the target company’s products themselves), manufacturing or testing methods, and product usage that would effectively block the company from further developing or expanding its related IP. However, it should be noted that even if blocking IP is discovered, the target asset is not necessarily a lost cause. Further investigation can determine the blocking patent’s validity and enforceability – it might be invalid or unenforceable because of issues such as maintenance fee nonpayment, prior art, inequitable conduct, and enablement or written description issues.
Assessing IP with qualitative analytics
The increasing speed of technology development has fundamentally changed how IP is viewed and utilized. Today, patents play a crucial and active role in business strategy as companies buy, sell, and license them to meet rapidly evolving business needs.
To effectively assess IP as part of the acquisition due diligence process requires a rapid and robust methodology that provides comprehensive and reliable results in virtual real-time. Slow, traditional patent searches and analyses that take weeks or even months are no longer adequate. Sophisticated qualitative analytics now exist that exponentially speeds up the process and provides immediate answers to questions about patent portfolio status, their influence in the marketplace, and their true value.
This kind of structured approach to patent analysis and acquisition due diligence leverages a range of proven research methods, analytics, and expert systems to analyze potential acquisition targets for purchase or lease and reveal:
- How novel is the IP?
- How well-written is it?
- Is it being cited by its peers?
- How is it positioned among its peers?
- What would the world look like if a competitor acquired the target?
Comprehensive, rigorous, and dynamic IP assessment is a vital component of the business acquisition process to help buyers accurately assess a technology sector, the players engaged in it, and the IP affecting it – their target’s and the competition’s.
